New Horizons in Law and Economics series
Edited by Alain Marciano and Jean-Michel Josselin
Chapter 1: Regulatory competition or harmonization of laws? Guidelines for the European regulator
Roger Van den Bergh INTRODUCTION The academic debate on the merits of ‘regulatory competition’ versus ‘harmonization of laws’ offers useful guidance when decisions with respect to the appropriate level of government for particular legislative actions must be taken. Insights from this debate seem to have penetrated policy discussions to a greater extent in the United States than in the European Union. The regulatory competition-based argument for decentralized governance has been applied by its American proponents to diverse regulatory areas, such as corporate law (Winter, 1985), securities (Romano, 1998), antitrust (Easterbrook, 1983), and environmental law (Revesz, 1992). In Europe, regulatory competition theorists have argued that economic analysis may clarify the obscure principle of subsidiarity (Van den Bergh, 1994). If one takes the latter principle seriously, there should be a presumption in favour of decentralized regulation and powers should be granted to the institutions of the European Community, only when it has been established that they cannot be satisfactorily exercised by member states (Art. 5 EC Treaty).1 The subsidiarity principle thus makes competition between legislators the rule and centralized governance (unification, harmonization) the exception. Neoclassical welfare economics offers efficiency criteria supporting centralized law making: the need to internalize externalities across jurisdictions, the danger of a ‘race to the bottom’, the achievement of scale economies and the reduction of transaction costs. Economic distortions in the form of market imperfections on the European markets for legislation may thus justify (quasi-) federal rules. However, before jumping to the conclusion that centralization is needed to...
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